UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C Form 10-K. For the Fiscal Year Ended January 30, 2016 OR

Transcription

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C Form 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended January 30, 2016 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: American Eagle Outfitters, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) No (I.R.S. Employer Identification No.) 77 Hot Metal Street, Pittsburgh, PA (Address of principal executive offices) (Zip Code) Registrant s telephone number, including area code: (412) Securities registered pursuant to Section 12(b) of the Act: Common Shares, $0.01 par value New York Stock Exchange (Title of class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES x NO o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Sections 15(d) of the Act. YES o NO x None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at the past 90 days. YES x NO o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( of this chapter) is not contained herein, and will not be contained, to the best of registrant s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO x The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of August 1, 2015 was $3,211,142,684. Indicate the number of shares outstanding of each of the registrant s classes of common stock, as of the latest practicable date: 180,659,762 Common Shares were outstanding at March 7, DOCUMENTS INCORPORATED BY REFERENCE Part III Proxy Statement for 2016 Annual Meeting of Stockholders, in part, as indicated.

2 AMERICAN EAGLE OUTFITTERS, INC. TABLE OF CONTENTS Page Number PART I Item 1. Business 3 Item 1A. Risk Factors 7 Item 1B. Unresolved Staff Comments 11 Item 2. Properties 11 Item 3. Legal Proceedings 12 Item 4. Mine Safety Disclosures 12 PART II Item 5. Market for the Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 12 Item 6. Selected Consolidated Financial Data 15 Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29 Item 8. Financial Statements and Supplementary Data 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 57 Item 9A. Controls and Procedures 57 Item 9B. Other Information 60 PART III Item 10. Directors, Executive Officers and Corporate Governance 60 Item 11. Executive Compensation 60 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 60 Item 13. Certain Relationships and Related Transactions, and Director Independence 60 Item 14. Principal Accounting Fees and Services 60 PART IV Item 15. Exhibits, Financial Statement Schedules 60 2

3 PART I Item 1. Business. General American Eagle Outfitters, Inc., ( AEO Inc., the Company, we, our ) a Delaware corporation, was founded in We are a leading specialty retailer, operating over 1,000 retail stores and online at ae.com and aerie.com in the U.S. and internationally. We offer a broad assortment of apparel and accessories for men and women under the American Eagle Outfitters brand, and intimates, apparel and personal care products for women under the Aerie brand. AEO Inc. operates stores in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom. We also have license agreements with third parties to operate American Eagle Outfitters and Aerie stores throughout Asia, Europe, Latin America and the Middle East. As of January 30, 2016, we operated 949 American Eagle Outfitters stores and 97 Aerie stand-alone stores. Our licensed store base has grown to 141 locations in 22 countries and our online business ships to 81 countries worldwide. Information concerning our segments and certain geographic information is contained in Note 2 of the Consolidated Financial Statements included in this Form 10-K and is incorporated herein by reference. Additionally, a five-year summary of certain financial and operating information can be found in Part II, Item 6, Selected Consolidated Financial Data, of this Form 10-K. See also Part II, Item 8, Financial Statements and Supplementary Data. Brands American Eagle Outfitters Brand ( AEO Brand ) The AEO Brand is an optimistic, authentic, energetic American brand. Our passion for denim is at the heart of everything we do, and our bottoms collection is complemented by a rich assortment of other apparel categories, as well as footwear and accessories. We work to craft high-quality, ontrend clothing that represents a terrific value in every style. Each season, it is our goal to create an aspirational collection and campaign that encourages our customers to take what we make, and LIVE YOUR LIFE. As of January 30, 2016, the AEO Brand operated 949 stores and online at ae.com. Aerie Aerie is an intimates brand, offering bras, undies, swim and so much more for every girl. Aerie embodies a youthful spirit, which is fun, relaxed, sexy, natural, strong and real. We are committed to not retouching our images and our brand DNA is deeply rooted in our Aerie REAL campaign, which focuses on body positivity and inspiring confidence in our customers. We believe beauty comes from the inside out. As of January 30, 2016, the Aerie brand operates 97 stand-alone stores and 67 side-by-side stores connected to AEO brand stores. In addition, the Aerie brand is sold in AEO brand stores and online at aerie.com. Other brands On November 2, 2015, AEO Inc. acquired Tailgate Clothing Company, which owns and operates Tailgate, a vintage, sports-inspired apparel brand with a college town store concept, and Todd Snyder New York, a premium menswear brand. As of January 30, 2016, we operated one Tailgate store in Iowa City, Iowa. Tailgate and Todd Snyder product is also sold online at TailgateClothing.com and ToddSnyder.com, respectively. 3

4 Business Priori ties & Strategy We are focused on delivering revenue growth and improved profitability as we execute on our key priorities. Our current priorities include: Capitalize on the strength of our brands to achieve growth through continued product innovation and product-focused marketing across both stores and digital channels to drive customer acquisition. Grow the Aerie brand through digital expansion, new customer acquisition and new store growth. Grow the digital business through our continued focus on advancing mobile, investing in digital marketing, expanding our product offerings and improving the desktop experience. Pursue international expansion by advancing our digital capabilities and through our blended approach of licensed and Company-owned store growth. Real Estate We ended Fiscal 2015 with 1,188 Company-owned and licensed store locations. Our AEO brand stores average approximately 6,500 gross square feet and approximately 5,200 on a selling square foot basis. Our Aerie brand stores average approximately 3,900 gross square feet and approximately 3,000 on a selling square foot basis. The gross square footage of our Company-owned stores remained flat during Fiscal Company-Owned Stores Our Company-owned retail stores are located in shopping malls, lifestyle centers and street locations in the U.S., Canada, Mexico, China, Hong Kong and the United Kingdom. Stores are located in high-traffic locations in most retail centers in which we operate. The following table provides the number of our Company-owned stores in operation as of January 30, 2016 and January 31, January 30, January 31, AEO Brand: United States Canada Mexico China 9 9 Hong Kong 6 5 United Kingdom 3 3 Total AEO Brand Aerie Brand: United States Canada Mexico Total Aerie Brand Tailgate 1 Total Consolidated 1,047 1,056 The following table provides the changes in the number of our Company-owned stores for the past five fiscal years: Fiscal Year Beginning of Year Opened Closed End of Year , (32) 1, , (70) 1, , (42) 1, , (41) 1, , (29) 1,069 4

5 Licensed Stores In addition to our Company-owned stores, our merchandise is sold at stores operated by licensees. Under these agreements, our merchandise is sold at American Eagle Outfitters and Aerie stores owned and operated by third party operators. Revenue recognized under license agreements generally consists of royalties earned and recognized upon sale of merchandise by franchise and license partners to retail customers. As of January 30, 2016, our products are sold at 141 locations operated by licensees in 22 countries. We continue to increase the number of locations under these types of arrangements as part of our balanced approach to global expansion. AEO Direct We sell merchandise through our websites, ae.com and aerie.com, both domestically and internationally. The websites reinforce each particular brand s lifestyle, and are designed to complement the in-store experience. Over the past several years, we have invested in building its technologies and digital capabilities. We focused our investments in three key areas: making significant advances in mobile technology, investing in digital marketing and improving the desktop experience. Omni-Channel In addition to our investments in technology, we have invested in building omni-channel capabilities to better serve customers and gain operational efficiencies. These upgraded technologies have provided a single view of inventory across channels, connecting physical stores directly to our digital business, providing our customers with a more convenient and improved shopping experience. Our store-to-door tool enables store customers to seamlessly make purchases from online inventory. Additionally, we fulfill online orders at stores through our buy online, ship from store tool, improving online order fulfillment rates. We also offer a reserve online, pick up in store service to our customers. We will continue to optimize these tools and services to build ongoing improvements to the customer shopping experience. Merchandise Suppliers We design our merchandise, which is manufactured by third-party factories. During Fiscal 2015, we purchased substantially all of our merchandise from non-north American suppliers. For the year, we sourced merchandise through approximately 300 vendors located throughout the world, primarily in Asia, and did not source more than 10% of our merchandise from any single factory or supplier during the year. We maintain a quality control department at our distribution centers to inspect incoming merchandise shipments for overall quality of manufacturing. Periodic inspections are also made by our employees and agents at manufacturing facilities to identify quality issues prior to shipment of merchandise. We uphold an extensive factory inspection program to monitor compliance with our Vendor Code of Conduct. New garment factories must pass an initial inspection in order to do business with us and we continue to review their social compliance performance both through internal audits by our compliance team and through the use of third-party monitors. We strive to partner with suppliers who respect local laws and share our dedication to utilize best practices in human rights, labor rights, environmental practices and workplace safety. Inventory and Distribution Merchandise is shipped directly from our vendors to our U.S. distribution centers in Hazelton, Pennsylvania and Ottawa, Kansas, or to our Canadian distribution center in Mississauga, Ontario. Additionally, an increasing amount of product is shipped directly to stores, by-passing our distribution centers which reduces transit times and lowers operating costs. We contract with third-party distribution centers in the Netherlands, Mexico City, Hong Kong and Shanghai. 5

6 We strive to mai ntain sufficient quantities of inventory in our retail stores and distribution centers to offer customers a full selection of current merchandise. We emphasize rapid turnover and take markdowns as required to keep merchandise fresh and current. Regulation We and our products are subject to regulation by various federal, state, local and foreign regulatory authorities. We are subject to a variety of customs regulations and international trade arrangements. Competition The retail apparel industry is highly competitive both in stores and on-line. We compete with various individual and chain specialty stores, as well as the casual apparel and footwear departments of department stores and discount retailers, primarily on the basis of quality, fashion, service, selection and price. Trademarks and Service Marks We have registered AMERICAN EAGLE OUTFITTERS, AMERICAN EAGLE, AE, AEO, LIVE YOUR LIFE, Aerie and the Flying Eagle Design with the United States Patent and Trademark Office. We also have registered or have applied to register these trademarks with the registries of the foreign countries in which our stores and/or manufacturers are located and/or where our product is shipped. We have registered AMERICAN EAGLE OUTFITTERS, AMERICAN EAGLE, AEO, LIVE YOUR LIFE, Aerie and the Flying Eagle Design with the Canadian Intellectual Property Office. In addition, we have acquired rights in AE TM for clothing products and registered AE in connection with certain non-clothing products. In the U.S. and in other countries around the world, we also have registered, or have applied to register, a number of other marks used in our business, including our pocket stitch designs. These registered trademarks are renewable indefinitely, and their registrations are properly maintained in accordance with the laws of the country in which they are registered. We believe that the recognition associated with these trademarks makes them extremely valuable and, therefore, we intend to use and renew our trademarks in accordance with our business plans. Employees As of January 30, 2016, we had approximately 37,800 employees in the United States, Canada, Mexico, Hong Kong, China and the United Kingdom of whom approximately 31,300 were part-time and seasonal hourly employees. Executive Officers of the Registrant Mary M. Boland, age 58, has served as our Executive Vice President, Chief Financial and Administrative Officer, and Principal Financial Officer since July Prior to joining us, Ms. Boland served Levi Strauss & Co. as Senior Vice President Finance of Global Levi s from 2011 to 2012 and as Senior Vice President Finance of the Americas from 2006 to Prior to that time, Ms. Boland held a variety of finance positions with General Motors Corporation from 1979 to 2006 including Vice President and Chief Financial Officer, North America from 2003 to Jennifer M. Foyle, age 49, has served as our Global Brand President Aerie since January Prior thereto, Ms. Foyle served as Executive Vice President, Chief Merchandising Officer Aerie from February 2014 to January 2015 and Senior Vice President, Chief Merchandising Officer Aerie from August 2010 to February Prior to joining us, Ms. Foyle was President of Calypso St. Barth from 2009 to In addition, she held various positions at J. Crew Group, Inc., including Chief Merchandising Officer, from 2003 to Charles F. Kessler, age 43, has served as our Global Brand President American Eagle Outfitters since January Prior thereto, he served as our Executive Vice President, Chief Merchandising and Design Officer American Eagle Outfitters from February 2014 to January Prior to joining us, Mr. Kessler served as Chief Merchandising Officer at Urban Outfitters, Inc. from October 2011 to November 2013 and as Senior Vice President, Corporate 6

7 Merchandising at Coach, Inc. from July 2010 to October Prior to that time, Mr. Kessler held vari ous positions with Abercrombie & Fitch Co. from 1994 to 2010, including Executive Vice President, Female Merchandising from 2008 to Michael R. Rempell, age 42, has served as our Executive Vice President and Chief Operations Officer since June Prior thereto, he served as our Executive Vice President and Chief Operating Officer, New York Design Center, from April 2009 to June 2012, as Senior Vice President and Chief Supply Chain Officer from May 2006 to April 2009, and in various other positions since joining us in February Jay L. Schottenstein, age 61, has served as our Executive Chairman, Chief Executive Officer since December Prior thereto, Mr. Schottenstein served as our Executive Chairman, Interim Chief Executive Officer from January 2014 to December He has also served as our Chairman and its predecessors since March He served as our Chief Executive Officer from March 1992 until December 2002 and prior to that time, he served as a Vice President and Director of our predecessors since He has also served as Chairman of the Board and Chief Executive Officer of Schottenstein Stores Corporation ( SSC ) since March 1992 and as President since Prior thereto, Mr. Schottenstein served as Vice Chairman of SSC from 1986 to He has been a Director of SSC since Mr. Schottenstein also served as Chief Executive Officer from March 2005 to April 2009 and as Chairman of the Board since March 2005 of DSW Inc., a company traded on the New York Stock Exchange. He has also served as an officer and director of various other entities owned or controlled by members of his family since Fiscal Year Our fiscal year ends on the Saturday nearest to January 31. As used herein, Fiscal 2016 refers to the 52 week period ending January 28, Fiscal 2015, Fiscal 2014 and Fiscal 2013 refer to the 52-week periods ended January 30, 2016, January 31, 2015 and February 1, 2014, respectively. Fiscal 2012 refers to the 53-week period ended February 2, Available Information Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available under the Investors section of our website at These reports are available as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (the SEC ). Our corporate governance materials, including our corporate governance guidelines, the charters of our audit, compensation, and nominating and corporate governance committees, and our code of ethics may also be found under the Investors. section of our website at Any amendments or waivers to our code of ethics will also be available on our website. A copy of the corporate governance materials is also available upon written request. Additionally, our investor presentations are available under the Investors section of our website at These presentations are available as soon as reasonably practicable after they are presented at investor conferences. Certifications As required by the New York Stock Exchange ( NYSE ) Corporate Governance Standards Section 303A.12(a), on June 24, 2015, our Chief Executive Officer submitted to the NYSE a certification that he was not aware of any violation by the Company of NYSE corporate governance listing standards. Additionally, we filed with this Form 10-K, the Principal Executive Officer and Principal Financial Officer certifications required under Sections 302 and 906 of the Sarbanes-Oxley Act of Item 1A. Risk Factors Our inability to anticipate and respond to changing consumer preferences, fashion trends and a competitive environment in a timely manner Our future success depends, in part, upon our ability to identify and respond to fashion trends in a timely manner. The specialty retail apparel business fluctuates according to changes in the economy and customer preferences, dictated by fashion and season. These fluctuations especially affect the inventory owned by apparel retailers because merchandise 7

8 typically must be ordered well in advance of the selling season. While we endeavor to test many merchandise items before ordering large quantities, we are still susceptible to changing fashion trends and fluctuations in customer dema nds. In addition, the cyclical nature of the retail business requires that we carry a significant amount of inventory, especially during our peak selling seasons. We enter into agreements for the manufacture and purchase of our private label apparel well in advance of the applicable selling season. As a result, we are vulnerable to changes in consumer demand, pricing shifts and the timing and selection of merchandise purchases. The failure to enter into agreements for the manufacture and purchase of merchandise in a timely manner could, among other things, lead to a shortage of inventory and lower sales. Changes in fashion trends, if unsuccessfully identified, forecasted or responded to by us, could, among other things, lead to lower sales, excess inventories and higher markdowns, which in turn could have a material adverse effect on our results of operations and financial condition. The effect of economic pressures and other business factors The success of our operations depends to a significant extent upon a number of factors relating to discretionary consumer spending, including economic conditions affecting disposable consumer income such as payroll taxes, employment, consumer debt, interest rates, increases in energy costs and consumer confidence. There can be no assurance that consumer spending will not be further negatively affected by general, local or international economic conditions, thereby adversely impacting our business and results of operations. Seasonality Historically, our operations have been seasonal, with a large portion of total net revenue and operating income occurring in the third and fourth fiscal quarters, reflecting increased demand during the back-to-school and year-end holiday selling seasons, respectively. As a result of this seasonality, any factors negatively affecting us during the third and fourth fiscal quarters of any year, including adverse weather or unfavorable economic conditions, could have a material adverse effect on our financial condition and results of operations for the entire year. Our quarterly results of operations also may fluctuate based upon such factors as the timing of certain holiday seasons, the number and timing of new store openings, the acceptability of seasonal merchandise offerings, the timing and level of markdowns, store closings and remodels, competitive factors, weather and general economic conditions. Our inability to react to raw material cost, labor and energy cost increases Increases in our costs, such as raw materials, labor and energy may reduce our overall profitability. Specifically, fluctuations in the cost associated with the manufacture of merchandise we purchase from our suppliers impacts our cost of sales. We have strategies in place to help mitigate these costs; however, our overall profitability depends on the success of those strategies. Additionally, increases in other costs, including labor and energy, could further reduce our profitability if not mitigated. Our inability to achieve planned store financial performance The results achieved by our stores may not be indicative of long-term performance or the potential performance of stores in other locations. The failure of stores to achieve acceptable results could result in additional store asset impairment charges, which could adversely affect our results of operations and financial condition. Our ability to rebalance our store fleet and drive improved performance through new store openings, selective closings and existing store remodels and expansions Our inability to drive improved performance will depend in part on our ability to rebalance our store fleet and expand and remodel existing stores on a timely and profitable basis. During Fiscal 2016, we plan to open approximately 15 to 20 new American Eagle Outfitters stores and approximately 10 new Aerie stores in North America and continue our international expansion. Additionally, we plan to remodel and refurbish 55 to 65 existing American Eagle Outfitters stores and close approximately 30 to 35 stores during Fiscal Accomplishing our store rebalancing and expansion goals will depend upon a number of factors, including the ability to obtain suitable sites for new and expanded stores at acceptable costs, the hiring and training of qualified personnel, particularly at the store management level, the integration of new stores into existing operations and the expansion of our buying and inventory capabilities. There can be no assurance that we will be able to achieve our store expansion and rebalancing goals, manage our growth 8

9 effecti vely, migrate the business from closing stores to other stores or our direct business, successfully integrate the planned new stores into our operations or operate our new and remodeled stores profitably. Our efforts to expand internationally We are actively pursuing additional international expansion initiatives, which include wholly-owned stores and stores operated by third parties in select international markets. The effect of these arrangements on our business and results of operations is uncertain and will depend upon various factors, including the demand for our products in new markets internationally. Furthermore, although we provide store operation training, literature and support, to the extent that the franchisee, licensee or other operator does not operate its stores in a manner consistent with our requirements regarding our brand and customer experience standards, our business results and the value of our brand could be negatively impacted. A failure to properly implement our expansion initiatives, or the adverse impact of political or economic risks in these international markets, could have a material adverse effect on our results of operations and financial condition. We have limited prior experience operating internationally, where we face established competitors. In many of these locations, the real estate, labor and employment, transportation and logistics and other operating requirements differ dramatically from those in the locations where we have more experience. Consumer demand and behavior, as well as tastes and purchasing trends, may differ substantially, and as a result, sales of our products may not be successful, or the margins on those sales may not be in line with those we currently anticipate. Any differences that we encounter as we expand internationally may divert financial, operational and managerial resources from our existing operations, which could adversely impact our financial condition and results of operations. In addition, we are increasingly exposed to foreign currency exchange rate risk with respect to our revenue, profits, assets, and liabilities denominated in currencies other than the U.S. dollar. We may in the future use instruments to hedge certain foreign currency risks; however, these measures may not succeed in offsetting all of the negative impact of foreign currency rate movements on our business and results of operations. As we pursue our international expansion initiatives, we are subject to certain laws, including the Foreign Corrupt Practices Act, as well as the laws of the foreign countries in which we operate. Violations of these laws could subject us to sanctions or other penalties that could have an adverse effect on our reputation, operating results and financial condition. Our international merchandise sourcing strategy Our merchandise is manufactured by suppliers worldwide. Although we purchase a significant portion of our merchandise through a single international buying agent, we do not maintain any exclusive commitments to purchase from any one vendor. Because we have a global supply chain, any event causing the disruption of imports, including the insolvency of a significant supplier or a major labor slow-down, strike or dispute including any such actions involving ports, transloaders, consolidators or shippers, could have an adverse effect on our operations. Given the volatility and risk in the current markets, our reliance on external vendors leaves us subject to certain risks should one or more of these external vendors become insolvent. Although we monitor the financial stability of our key vendors and plan for contingencies, the financial failure of a key vendor could disrupt our operations and have an adverse effect on our cash flows, results of operations and financial condition. Other events that could also cause a disruption of imports include the imposition of additional trade law provisions or import restrictions, such as increased duties, tariffs, anti-dumping provisions, increased United States Customs and Border Protection (CBP) enforcement actions, or political or economic disruptions. We have a Vendor Code of Conduct (the Code ) that provides guidelines for our vendors regarding working conditions, employment practices and compliance with local laws. A copy of the Code is posted on our website, and is also included in our vendor manual in English and multiple other languages. We have a factory compliance program to audit for compliance with the Code. However, there can be no assurance that all violations can be eliminated in our supply chain. Publicity regarding violation of our Code or other social responsibility standards by any of our vendor factories could adversely affect our reputation, sales and financial performance. We believe that there is a risk of terrorist activity on a global basis. Such activity might take the form of a physical act that impedes the flow of imported goods or the insertion of a harmful or injurious agent to an imported shipment. We have instituted policies and procedures designed to reduce the chance or impact of such actions. Examples include, but are not limited to, factory audits and self-assessments, including audit protocols on all critical security issues; the review of security procedures of our other international trading partners, including forwarders, consolidators, shippers and brokers; 9

10 and the cancellation of agreements with entities who fail to meet our security requirements. In addition, CBP has recognized us as a validated participant of the Customs - Trade Partnership Aga inst Terrorism program, a voluntary program in which an importer agrees to work with customs to strengthen overall supply chain security. However, there can be no assurance that terrorist activity can be prevented entirely and we cannot predict the likelih ood of any such activities or the extent of their adverse impact on our operations. Our reliance on our ability to implement and sustain information technology systems We regularly evaluate our information technology systems and are currently implementing modifications and/or upgrades to the information technology systems that support our business. Modifications include replacing legacy systems with successor systems, making changes to legacy systems or acquiring new systems with new functionality. We are aware of inherent risks associated with operating, replacing and modifying these systems, including inaccurate system information and system disruptions. We believe we are taking appropriate action to mitigate the risks through testing, training, staging implementation and in-sourcing certain processes, as well as securing appropriate commercial contracts with third-party vendors supplying such replacement and redundancy technologies; however, there is a risk that information technology system disruptions and inaccurate system information, if not anticipated and/or promptly and appropriately mitigated, could have a material adverse effect on our results of operations. Our inability to safeguard against security breaches with respect to our information technology systems Our business employs systems and websites that allow for the storage and transmission of proprietary or confidential information regarding our business, customers and employees including credit card information. Security breaches could expose us to a risk of loss or misuse of this information and potential liability. We may not be able to anticipate or prevent rapidly evolving types of cyber-attacks. Actual or anticipated attacks may cause us to incur increasing costs including costs to deploy additional personnel and protection technologies, train employees and engage third party experts and consultants. Advances in computer capabilities, new technological discoveries or other developments may result in the technology used by us to protect transaction or other data being breached or compromised. Data and security breaches can also occur as a result of nontechnical issues including intentional or inadvertent breach by employees or persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. Any compromise or breach could result in a violation of applicable privacy and other laws, significant financial exposure and a loss of confidence in our security measures, which could have an adverse effect on our results of operations and our reputation. Our reliance on key personnel Our success depends to a significant extent upon our ability to attract and retain qualified key personnel, including senior management. Collective or individual changes in our senior management and other key personnel could have an adverse effect on our ability to determine and execute our strategies, which could adversely affect our business and results of operations. There is a high level of competition for senior management and other key personnel, and we cannot be assured we will be able to attract, retain and develop a sufficient number of qualified senior managers and other key personnel. Failure to comply with regulatory requirements As a public company, we are subject to numerous regulatory requirements, including those imposed by the Sarbanes-Oxley Act of 2002, the SEC and the NYSE. In addition, we are subject to numerous domestic and foreign laws and regulations affecting our business, including those related to labor, employment, worker health and safety, competition, privacy, consumer protection, import/export and anti-corruption, including the Foreign Corrupt Practices Act. Although we have put into place policies and procedures aimed at ensuring legal and regulatory compliance, our employees, subcontractors, vendors and suppliers could take actions that violate these requirements, which could have a material adverse effect on our reputation, financial condition and on the market price of our common stock. In addition, recent regulatory developments regarding the use of conflict minerals, certain minerals originating from the Democratic Republic of Congo and adjoining countries, could affect the sourcing and availability of raw materials used by suppliers and subject us to costs associated with the regulations, including for the diligence pertaining to the presence of any conflict minerals used in our products, possible changes to products, processes or sources of our inputs, and reporting requirements. 10

11 Fluctuations in foreign currency exchange rates could adversely impact our financial condition and results of operations We have foreign currency exchange rate risk with respect to revenues, expenses, assets and liabilities denominated in currencies other than the U.S. dollar. We currently do not utilize hedging instruments to mitigate foreign currency exchange risks. Specifically, fluctuations in the value of the Canadian Dollar, Mexican Peso, Chinese Yuan, Hong Kong Dollar, British Pound and Euro against the U.S. Dollar could have a material adverse effect on our results of operations, financial condition and cash flows. Other risk factors Additionally, other factors could adversely affect our financial performance, including factors such as: our ability to successfully acquire and integrate other businesses; any interruption of our key infrastructure systems, including exceeding capacity in our distribution centers; any disaster or casualty resulting in the interruption of service from our distribution centers or in a large number of our stores; any interruption of our business related to an outbreak of a pandemic disease in a country where we source or market our merchandise; extreme weather conditions or changes in climate conditions or weather patterns; the effects of changes in current exchange rates and interest rates; and international and domestic acts of terror. The impact of any of the previously discussed factors, some of which are beyond our control, may cause our actual results to differ materially from expected results in these statements and other forward-looking statements we may make from time-to-time. Item 1B. Unresolved Staff Comments. Not applicable. Item 2. Properties. We own two buildings in urban Pittsburgh, Pennsylvania which house our corporate headquarters. These buildings total 186,000 square feet and 150,000 square feet, respectively. We lease one location near our headquarters, which is used primarily for store and corporate support services, totaling approximately 51,000 square feet. This lease expires in In suburban Pittsburgh, Pennsylvania, we own a 45,000 square foot building, which houses our data center and additional office space and lease an additional location of approximately 18,000 square feet, which is used for storage space. This lease expires in We rent approximately 142,000 square feet of office space in New York, New York for our designers and sourcing and production teams. The lease for this space expires in May We also lease an additional 35,000 square feet of office space in New York, New York, with various terms expiring through We lease 9,200 square feet of office space in San Francisco, California that functions as a technology center for our engineers and digital marketing team focused on our omni-channel strategy. The lease for this space expires in We also lease offices in international locations including 5,800 square feet in Mexico City expiring in 2020, 15,400 square feet in Hong Kong expiring in 2017 and 11,300 square feet in Shanghai, China expiring in We own a distribution facility in Ottawa, Kansas consisting of approximately 1,220,000 total square feet. This facility is used to support new and existing growth initiatives, including AEO Direct and Aerie. We opened a new distribution facility in 2014 in Hazleton, Pennsylvania consisting of approximately 1,000,000 total square feet. This is designed to enable faster, more efficient product deliveries and to support our long-term expansion goals. We lease a building in Mississauga, Ontario with approximately 294,000 square feet, which houses our Canadian distribution center. The lease expires in

12 We lease our flagship store in the Times Square area of New York, New York. The 25,000 square foot location has an initial term of 15 years with three options to renew for five years each. This flagship store opened in November 2009 and the initial lease term expires in All of our stores are leased and generally have initial terms of 10 years. Certain leases also include early termination options, which can be exercised under specific conditions. Most of these leases provide for base rent and require the payment of a percentage of sales as additional contingent rent when sales reach specified levels. Under our store leases, we are typically responsible for tenant occupancy costs, including maintenance and common area charges, real estate taxes and certain other expenses. We have generally been successful in negotiating renewals as leases near expiration. Ite m 3. Legal Proceedings. We are a party to various legal actions incidental to our business, including certain actions in which we are the plaintiff. At this time, our management does not expect the results of any of the legal actions to be material to our financial position or results of operations. Item 4. Mine Safety Disclosures. Not Applicable PART II Item 5. Market for the Registrant s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is traded on the NYSE under the symbol AEO. As of March 7, 2016, there were 512 stockholders of record. However, when including associates who own shares through our employee stock purchase plan, and others holding shares in broker accounts under street name, we estimate the stockholder base at approximately 65,000. The following table sets forth the range of high and low closing prices of the common stock as reported on the NYSE during the periods indicated. Market Price Cash Dividends per For the Quarters Ended High Low Common Share January 30, 2016 $ $ $ October 31, 2015 $ $ $ August 1, 2015 $ $ $ May 2, 2015 $ $ $ January 31, 2015 $ $ $ November 1, 2014 $ $ $ August 2, 2014 $ $ $ May 3, 2014 $ $ $ During Fiscal 2015 and Fiscal 2014, we paid quarterly dividends as shown in the table above. The payment of future dividends is at the discretion of our Board of Directors (the Board ) and is based on future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other relevant factors. It is anticipated that any future dividends paid will be declared on a quarterly basis. 12

13 Performan ce Graph The following Performance Graph and related information shall not be deemed soliciting material or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing. The following graph compares the changes in the cumulative total return to holders of our common stock with that of the S&P Midcap 400 and the Dynamic Retail Intellidex. The comparison of the cumulative total returns for each investment assumes that $100 was invested in our common stock and the respective index on January 29, 2011 and includes reinvestment of all dividends. The plotted points are based on the closing price on the last trading day of the fiscal year indicated. 1/29/11 1/28/12 2/2/13 2/1/14 1/31/15 1/30/16 American Eagle Outfitters, Inc S&P Midcap Dynamic Retail Intellidex

14 The following table provides information regarding our repurchases of common stock during the three months ended January 30, Issuer Purchases of Equity Securities Total Number of Maximum Number of Total Average Shares Purchased as Shares that May Number of Price Paid Part of Publicly Yet be Purchased Period Shares Purchased Per Share Announced Programs Under the Program (1) (2) (1) (3) (3) Month #1 (November 1, 2015 through November 28, 2015) $ 17,400,000 Month #2 (November 29, 2015 through January 2, 2016) 1,649,352 $ ,649,116 15,750,884 Month #3 (January 3, 2016 through January 30, 2016) 12,913,868 $ ,913,868 2,837,016 Total 14,563,220 $ ,562,984 2,837,016 (1) There were 14.6 million shares repurchased as part of our publicly announced share repurchase program during the three months ended January 30, 2016 and there were 236 shares repurchased for the payment of taxes in connection with the vesting of share-based payments. (2) Average price paid per share excludes any broker commissions paid. (3) In January 2013, our Board authorized the repurchase of 20.0 million shares of our common stock. The authorization of the remaining 2.8 million shares that may yet be purchased expires on January 28, The following table sets forth additional information as of the end of Fiscal 2015, about shares of our common stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our stockholders and plans or arrangements not submitted to our stockholders for approval. The information includes the number of shares covered by and the weighted average exercise price of, outstanding options and other rights and the number of shares remaining available for future grants excluding the shares to be issued upon exercise of outstanding options, warrants and other rights. Unregistered Sale of Equity Securities and Use of Proceeds On November 2, 2015, the Company issued 197,496 shares of common stock, with the approximate value of $3,087,000, to certain former stockholders of Tailgate Clothing Company, Corp. ( Tailgate ) in connection with the Company s acquisition of Tailgate. These shares were issued in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the Securities Act ), in reliance on the exemptions set forth in Section 4(a)(2) of the Securities Act and Rule 506 promulgated thereunder. Equity Compensation Plan Table Column (a) Column (b) Column (c) Number of securities remaining available Number of securities Weighted-average for issuance under to be issued upon exercise price of equity compensation exercise of outstanding outstanding options, plans (excluding options, warrants and securities reflected warrants and rights (1) rights (1) in column (a)) (1) Equity compensation plans approved by stockholders 1,212,930 $ ,009,946 Equity compensation plans not approved by stockholders Total 1,212,930 $ ,009,946 (1) Equity compensation plans approved by stockholders include the 1999 Stock Incentive Plan, the 2005 Stock Award and Incentive Plan, as amended (the 2005 Plan ), and the 2014 Stock Award and Incentive Plan (the 2014 Plan ). 14

15 Item 6. Selected Consol idated Financial Data. The following Selected Consolidated Financial Data should be read in conjunction with Management s Discussion and Analysis of Financial Condition and Results of Operations, included under Item 7 below and the Consolidated Financial Statements and Notes thereto, included in Item 8 below. Most of the selected Consolidated Financial Statements data presented below is derived from our Consolidated Financial Statements, if applicable, which are filed in response to Item 8 below. The selected Consolidated Statement of Operations data for the years ended February 2, 2013 and January 28, 2012 and the selected Consolidated Balance Sheet data as of February 1, 2014, February 2, 2013 and January 28, 2012 are derived from audited Consolidated Financial Statements not included herein. For the Years Ended (1) (In thousands, except per share amounts, ratios and other January 30, January 31, February 1, February 2, January 28, financial information) Summary of Operations (2) Total net revenue $ 3,521,848 $ 3,282,867 $ 3,305,802 $ 3,475,802 $ 3,120,065 Comparable sales increase (decrease) (3) 7% (5)% (6)% 9% 4% Gross profit $ 1,302,734 $ 1,154,674 $ 1,113,999 $ 1,390,322 $ 1,144,594 Gross profit as a percentage of net sales 37.0% 35.2% 33.7% 40.0% 36.7% Operating income $ 319,878 $ 155,765 $ 141,055 $ 394,606 $ 269,335 Operating income as a percentage of net sales 9.1% 4.7% 4.3% 11.4% 8.6% Income from continuing operations $ 213,291 $ 88,787 $ 82,983 $ 264,098 $ 175,279 Income from continuing operations as a percentage of net sales 6.1% 2.6% 2.5% 7.6% 5.6% Per Share Results Income from continuing operations per common share-basic $ 1.10 $ 0.46 $ 0.43 $ 1.35 $ 0.90 Income from continuing operations per common share-diluted $ 1.09 $ 0.46 $ 0.43 $ 1.32 $ 0.89 Weighted average common shares outstanding basic 194, , , , ,445 Weighted average common shares outstanding diluted 196, , , , ,314 Cash dividends per common share $ 0.50 $ 0.50 $ 0.38 $ 2.05 $ 0.44 Balance Sheet Information Total cash and short-term investments $ 260,067 $ 410,697 $ 428,935 $ 630,992 $ 745,044 Long-term investments $ $ $ $ $ 847 Total assets $ 1,612,246 $ 1,696,908 $ 1,694,164 $ 1,756,053 $ 1,950,802 Short-term debt $ $ $ $ $ Long-term debt $ $ $ $ $ Stockholders equity $ 1,051,376 $ 1,139,746 $ 1,166,178 $ 1,221,187 $ 1,416,851 Working capital $ 259,693 $ 368,947 $ 462,604 $ 647,668 $ 833,326 Current ratio Average return on stockholders equity 19.9% 7.0% 7.0% 17.6% 11.0% Other Financial Information (2) Total stores at year-end 1,047 1,056 1,066 1,044 1,069 Capital expenditures $ 153,256 $ 245,002 $ 278,499 $ 93,939 $ 89,466 Net sales per average selling square foot (4) $ 545 $ 525 $ 547 $ 602 $ 547 Total selling square feet at end of period 5,285,025 5,294,744 5,205,948 4,962,923 5,028,493 Net sales per average gross square foot (4) $ 436 $ 420 $ 444 $ 489 $ 438 Total gross square feet at end of period 6,601,112 6,613,100 6,503,486 6,023,278 6,290,284 Number of employees at end of period 37,800 38,000 40,400 40,100 39,600 15